Enstar Natural Gas Co. sent letters Nov. 10 notifying customers recently returned to Enstar by Aurora Power, a gas wholesaler, that the utility may not have enough gas under contract to supply the 291 firms beyond the end of December.

“If this really happens, I'm out of business,” said Adam Galindo, owner of Taco Loco Products. “My ovens may as well be scrap metal.”

Galindo and other business managers sounded off at a Nov. 25 legislative hearing in Anchorage. State Sen. Hollis French, D-Anchorage, chairman of the Senate Judiciary Committee, convened the session to probe the issue.

Ironically, there's plenty of gas available but Enstar told French's committee it can't sell gas to customers beyond guaranteed supplies committed by contracts the utility has that are approved by the Regulatory Commission of Alaska. Enstar's contracts that are approved don't have enough gas, the utility said.

“We aren't allowed to bring new customers onto our system if we don't have the gas supply. It would disrupt our service to our existing customers,” Dan Dieckgraeff, Enstar's regulatory affairs manager, told the legislators.

Enstar hopes to get two new contracts approved which will supply enough gas, but that can happen only if ConocoPhillips and Marathon Oil Co., two Cook Inlet gas producers, agree to changes to price terms ordered Oct. 31 by the Regulatory Commission of Alaska.

A decision by the producing companies is expected Dec. 1.

French's committee learned, however, that there may be other options for Enstar than cutting off the customers who had received letters. The utility has another contract with producers in the Beluga gas field, where it can request more gas.

Enstar said there's no guarantee the Beluga producers can make more gas available, however.

The affected property owners had signed up with Aurora Power, a wholesaler that sells gas at discounted prices, but which are interruptible on 30 days' notice.

Earlier this fall Aurora sent notice it was terminating gas service so it can sell its gas to a single new customer, Fairbanks Natural Gas, operator of a small gas utility in the Interior city. Aurora's gas is supplied by a sister company, Aurora Gas, which owns producing gas wells on the west side of Cook Inlet.

The safety net for the displaced consumers was always felt to be Enstar, the local gas utility. But now the utility doesn't have enough gas and isn't required to service returning customers.

Enstar has long known that it will face shortages in its contracted gas supply beginning in 2009. The utility started working with gas producing companies in 2004 to get a new contract in place to cover the gap.

One contract agreed on between the utility and Marathon Oil Co. in 2005 was turned down by the RCA in late 2007 because it pegged prices for gas to the Henry Hub gas trading hub in Louisiana, a widely-used and published gas price reference point.

The utility went to work on a new contract and brought it to the regulatory commission earlier this year with a pricing mechanism suggested by the state Attorney General's consumer affairs office. It used a mix of average prices in several Lower 48 trading hubs.

The commission turned that down Oct. 31 and proposed its own pricing system, a mix of prices in several U.S. gas producing rather than trading regions. The effect of that would be to reduce gas prices to Enstar by about 15 percent.

The cost is lower because prices at the trading hubs include pipeline transportation costs but prices in the producing regions, which are more similar to Cook Inlet, do not include pipeline costs.

The companies argue the producing regions selected by the RCA are areas with low costs and ample resources, which means they are low-risk. That's not the case in Cook Inlet, where costs are high and the risks of dry holes are substantial.

New explorers in Cook Inlet are watching these proceedings carefully, because the outcome will set a precedent if they sell gas to a regulated utility like Enstar.

“We've had discussions with Armstrong Oil and Gas, which hopes to develop the small North Fork gas field on the Kenai Peninsula. They've told us they want to wait to see how this turns out,” said Mark Slaughter, Enstar's gas supply manager.

Meanwhile, property owners and businesses affected by this tangle are frustrated.

“I thought that I had faced every kind of adversity in business possible, but this one takes the cake,” Mike Gordon, owner of Chilkoot Charlie's, a popular Anchorage drinking establishment, told the Senate committee. Gordon's is one of the buildings affected.

Tom Tibor, manager of Northwest Airline's cargo facilities at Anchorage's international airport , said, “I feel like we're being played,” in maneuvers between Enstar and the gas producers. Northwest's 50,000-square-foot air cargo warehouse is one of the buildings that could be cut off. That could affect jobs held by about 300 people working in the facility, Tibor said.

Continental Motor Group, another firm affected, has four auto dealerships in Anchorage facing the possible gas shutoff, manager Marten Martensen told legislators.

Enstar said it is doing its best to make sure the former Aurora customers will have gas in January, but also said these property owners assumed a risk when they signed up with Aurora.

“Without these two (pending) contracts, there's not enough gas to supply these people,” said Slaughter, of Enstar's gas supply manager. “These people chose to leave Enstar's system to benefit from Aurora's lower price.”